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Eurozone finance ministers have agreed a deal on a 10bn-euro bailout for Cyprus to prevent its banking system collapsing and keep the country in the eurozone.

Reports suggest the deal will include a levy on deposits of more than 100,000 euros in Cyprus's two biggest banks.

The levy on deposits in Laiki (Popular) Bank - the country's second-biggest - could be as high as 40%, reports say.

The European Central Bank had set a deadline of Monday for a deal.

Laiki is also likely to be split into "good" and "bad" banks.

The deal is good news for Cyprus' small account holders, the BBC's Christian Fraser reports from Paris.

All deposits under 100,000 euros will be secured. But for those with deposits of more than that amount in the country's two biggest banks - Laiki and Bank of Cyprus - the deal will come as a bitter blow, our correspondent says.

The percentage to be levied on large deposits in the Bank of Cyprus has yet to be resolved, our correspondent adds.

One key element of the deposit tax, demanded by the IMF, is that it not require a parliamentary vote.

Earlier reports said Laiki's good assets would be merged into Bank of Cyprus and administrators appointed to liquidate the remaining toxic assets.

Asian financial markets rose in early trading on news of the deal.

Resignation threat

The deal came after hours of tense negotiations between Cypriot President Nicos Anastasiades and the "troika" of EU, European Central Bank and IMF leaders.

Mr Anastasiades had reportedly asked the heads of the troika if they wanted him to quit.

"Do you want to force me to resign?" Cyprus News Agency quoted him as saying, citing sources at the presidential palace.

"I am giving you one proposal, and you do not accept it. I give you another and it's the same. What else do you want me to do?" he was quoted as saying.

In another development on Sunday, Bank of Cyprus - the island's biggest lender - further limited cash machine withdrawals to 120 euros a day.

The proposed solutions to the crisis have sparked anger among ordinary Cypriots With queues growing outside cash machines across the island, the second biggest lender, Laiki, also lowered its daily limit to 100 euros, Cyprus News Agency reported. The bank's previous limit had been 260 euros per day.

Banks have been closed since Monday and many businesses are only taking payment in cash.

In the run-up to the crunch talks in Brussels, the EU's commissioner for economic affairs, Olli Rehn, said the island had only "hard choices left" and must agree terms on Sunday.

German pressure

Parliament rejected a bank levy on small and large deposits earlier this week. The levy that was rejected would have taken 6.75% from small savers and 9.9% from larger investors. It caused widespread anger among ordinary savers.

If a deal on an alternative agreement fails, the European Central Bank (ECB) says it will cut off funds to the banks, meaning they would collapse, possibly pushing the country out of the eurozone.

There is concern on the Mediterranean island that a levy on large-scale foreign investors, many of whom are Russian, will damage its financial sector.

But leading Cypriot bankers have urged parliament to accept a levy, with small savers exempted.

Correspondents say Germany has pushed hard for a levy on investors who have benefited from high interest rates in recent years, rejecting a Cypriot plan to use money from pension funds.

Looks like IMF learnt from the previous bungle what would happen if it went for a vote.

On the other hand, you may as well me forcing a country to bypass 1/3 of it's effective functioning government to get your terms across. You're practically telling the country that part of it's own government will have no say in how to keep the damn country running.

On the other hand, you may as well me forcing a country to bypass 1/3 of it's effective functioning government to get your terms across. You're practically telling the country that part of it's own government will have no say in how to keep the damn country running.

If the own government is behaving like a bunch of kids trying to run a playground? I think that is absolutely worth it to reach out and give a smack across their face.

Though I have no idea what is going to happen to the poor depositors from the 2nd largest bank who have no other sources of income : namely the retirees. It is like a clusterbomb just got shoved up their wrinkled asses.

__________________

When three puppygirls named after pastries are on top of each other, it is called Eclair a'la menthe et Biscotti aux fraises avec beaucoup de Ricotta sur le dessus.
Most of all, you have to be disciplined and you have to save, even if you hate our current financial system. Because if you don't save, then you're guaranteed to end up with nothing.

Well for one the IMF gets a lot of flack in many developing nations for the steep requirements they place to start handing out monetary assistance (Philippines for one). There are those who see it as offering sovereignty to the altar of money. I'm sure some Cypriots might see the IMFs demand of bypassing parliament similarly.

@SaintessHeart: The problem is that the one who is smacked are the people and small buisness, politicians and major investors will take advantage of the temporary nature of the capital restrictions to move their money in Malta, Latvia, and Luxembourg.

Quote:

Originally Posted by MeoTwister5

Well for one the IMF gets a lot of flack in many developing nations for the steep requirements they place to start handing out monetary assistance (Philippines for one). There are those who see it as offering sovereignty to the altar of money. I'm sure some Cypriots might see the IMFs demand of bypassing parliament similarly.

Democracy is not very popular with the financial circles

Anyway, that "compromise" basically will bankrupt the state along with its banks and explode their external debt. Dunno, it would be better for them to exit now and clean up their financial sector without the involvement of IMF, which has destroyed every country it tried to help. But should they be allowed to do that, euro will be in even greater trouble.

@SaintessHeart: The problem is that the one who is smacked are the people and small buisness, politicians and major investors will take advantage of the temporary nature of the capital restrictions to move their money in Malta, Latvia, and Luxembourg.

Democracy is not very popular with the financial circles

Anyway, that "compromise" basically will bankrupt the state along with its banks and explode their external debt. Dunno, it would be better for them to exit now and clean up their financial sector without the involvement of IMF, which has destroyed every country it tried to help. But should they be allowed to do that, euro will be in even greater trouble.

I'm going to assume that for the most part the IMF is actually trying to help bankrupt countries. It's just that these countries seriously can't do enough fiscal overhauling to use the money properly. It's like tossing money at a drunk hobo. You think that if they had more money they'd make some sense out for their lives, but in reality they'd end up doing the same with their money anyway.

I'm going to assume that for the most part the IMF is actually trying to help bankrupt countries. It's just that these countries seriously can't do enough fiscal overhauling to use the money properly. It's like tossing money at a drunk hobo. You think that if they had more money they'd make some sense out for their lives, but in reality they'd end up doing the same with their money anyway.

I completely disagree. IMF has one rigid model for development that requires dictatorships in order to succeed anywhere. There are many alternatives to it, but need serious politicians, not the populists that rule Europe.

@SaintessHeart: The problem is that the one who is smacked are the people and small buisness, politicians and major investors will take advantage of the temporary nature of the capital restrictions to move their money in Malta, Latvia, and Luxembourg.

Democracy is not very popular with the financial circles

Anyway, that "compromise" basically will bankrupt the state along with its banks and explode their external debt. Dunno, it would be better for them to exit now and clean up their financial sector without the involvement of IMF, which has destroyed every country it tried to help. But should they be allowed to do that, euro will be in even greater trouble.

Pardon .. ? The IMF gets a lot of flank for the restrictions that come with the money it provides. Simple, don't take the money, be left to your own devices. Don't screw up your country. The problem is that countries are being mismanaged. Think about it this way -- Cyprus banks were offering 5% interest rates on deposits -- this was to attract foreign capital. You know what global interest rates are right now? LIBOR, EURIBOR, etc? Close to zero. The banks were basically borrowing money at corporate borrowing rates.

So let's rephrase, the IMF, in your opinion makes the situation worse (?) -- for countries that have already destroyed themselves before the IMF ever got involved.

Pardon .. ? The IMF gets a lot of flank for the restrictions that come with the money it provides. Simple, don't take the money, be left to your own devices. Don't screw up your country. The problem is that countries are being mismanaged. Think about it this way -- Cyprus banks were offering 5% interest rates on deposits -- this was to attract foreign capital. You know what global interest rates are right now? LIBOR, EURIBOR, etc? Close to zero. The banks were basically borrowing money at corporate borrowing rates.

So let's rephrase, the IMF, in your opinion makes the situation worse (?) -- for countries that have already destroyed themselves before the IMF ever got involved.

My bank back in UK offer 4.5% and was also involved in illegal activities, should we slash all deposits because of mismanagement? Should we plunge UK government with more debt?

As for IMF, you are forgetting that in return for their help, they bloat the debt, shrink economies, increase unemployment, slash wages and sell out all natural resources. IMF started helping a Greece with $340 billion and in three years plunged it to $290 billion, debt/GDP from 115% to 175%, official unemployment from 8% to 24%... instead of requiring the government to fight against tax evasion and corruption, they ignore it and press only for more levies and taxes to loan more money and increase their debt... great help indeed.

I'm going to assume that for the most part the IMF is actually trying to help bankrupt countries. It's just that these countries seriously can't do enough fiscal overhauling to use the money properly. It's like tossing money at a drunk hobo. You think that if they had more money they'd make some sense out for their lives, but in reality they'd end up doing the same with their money anyway.

If you want to learn more about IMF screw-ups you should read the book Shock Doctrine by Naomi Klein. Not all bankrupt countries in need of bailouts were reckless drunk spenders. Also as noted by earlier posters before these IMF bailout/Austerity packages Ireland and Spain had fiscal surpluses and the deficit in Italy was tiny certainly below the 3% limit laid out in the EU laws. So this definition of irresponsible spending is certainly not universal for all the countries bailed out.

When it comes to deficits and recessions it can be a bit of chicken and egg scenario. What came first the deficit or the recession? In some cases such as Greece the cuts back from excess spending caused a recession whereas in other cases the recession caused a reduction in tax revenues and a increase in government spending (due to rising unemployment) which creates the deficit. Further austerity can in some cases paradoxically increase the deficit as more austerity can mean declines in government revenues exceed the lower costs in government spending. This has been the case in Greece and even in England where the austerity measures have done nothing to reduce the deficit as all gains made in savings where offset by declines in government revenues.

Austerity and saving may sound good on paper as we tend to think of a countries budget plan like that of a personal budget. If we reduce costs and pay of our debts we can strengthen our financial position and have a better future. Whilst this is certainly true on a micro level if taken on a macro level all we are doing is reducing gross spending which acts as a drag on economic growth. If the drag is big enough it can actually make the deficit worse. That is why a robust plan for growth must be brought in place in conjunction with an austerity plan. Blind austerity measures with no accompanying plans for economic expansion is just a recipe for a disaster (and this is what the IMF has largely been promoting).

In any case, the important point to grasp is optimal decisions made by individual people may not lead to optimal scenarios on a macro level for society in general. This issue is kind of related to the tragedy of the commons dilemma although it is not quite the same so I hesitate to bring it. The same sort of dynamics are displayed though.

My bank back in UK offer 4.5% and was also involved in illegal activities, should we slash all deposits because of mismanagement? Should we plunge UK government with more debt?

As for IMF, you are forgetting that in return for their help, they bloat the debt, shrink economies, increase unemployment, slash wages and sell out all natural resources. IMF started helping a Greece with $340 billion and in three years plunged it to $290 billion, debt/GDP from 115% to 175%, official unemployment from 8% to 24%... instead of requiring the government to fight against tax evasion and corruption, they ignore it and press only for more levies and taxes to loan more money and increase their debt... great help indeed.

That UK bank should be allowed to go under and you should be insured to your government insured limits. Y'know, just like how the deal that is getting done in Cyprus now is getting done. Here's something else: do you not understand something? The old GDP numbers? The old employment numbers? THEY WERE A LIE! They were based on artificial government overspending fueled by debt.

Y'know what's the coldest and hardest move they could have done? Automatic ejection from the eurozone upon defaults. Instead of money going to prop up Greece and all of these other countries? Provide a one time recovery fund for domestic investors and let everyone else flounder.

Why was that not done? Fear of contagion. Fear of moral hazard. But y'know what, Germans, Britons, French, the public in all those countries would have loved it. Then what would have happened to Greece? If you think 24% unemployment is high, think about what it would have been if the country literally went bankrupt and all international markets immediately froze them out?

Why was that not done? Fear of contagion. Fear of moral hazard. But y'know what, Germans, Britons, French, the public in all those countries would have loved it. Then what would have happened to Greece? If you think 24% unemployment is high, think about what it would have been if the country literally went bankrupt and all international markets immediately froze them out?

I think it is a little unfair to say this fear is simply limited to the Brits, French and Germans. The US are playing the same game for Pete sake Bernanke is printing $85 billion a month for god knows when to avoid a similar mess in the US. And that's only the stuff we know about. The Japanese have purposely depreciated their currency and the Chinese have also been playing the extend and pretend game as they have their own bubbles they need to contain. Everyone is playing the game and not just the Europeans so I don't think it is fair to suggest this is a European phenomenon. It is worldwide issue.

As for the whole bailout thing. You are right if we had let the banks fail the situation would have certainly been worse. Unemployment would be even higher and even this does not get to the end of it as you omitted one BIG detail in this story that assures more bailouts will be tried despite the obvious blowbacks. That is globalisation and world trade in general is heavily dependent on banks and if the banks go bust then countries will loss access to vital goods such as food, clothes, other basic goods and other vital resources such as oil, gas or coal. It is this dependence on the global economy to meet each individual countries basics needs that make them beholden to any bailout package no matter how terrible the medicine is.

The other possible monkey wrench in this spiel is that due to the sheer scale and complexity of various debt obligations not to mention the level interconnectedness of countries economies means nobody really knows who owes what. The so called contagion effect is quite likely to cause cascading failures around the block that will not just effect the Euro zone but also the US and Asian markets. Nobody wants to open that can of worms so the package is passed around as the contents in the core become increasingly rotten until the stench can no longer be ignored or denied. Indeed it is quite likely an implosion of the Euro zone will be the Lehman Brothers Mach 2.0. To me it is a question of when rather than if. I will say that there will be some black swan event that tips this unsteady equilibrium we see today into full on failure mode.

I will say that there will be some black swan event that tips this unsteady equilibrium we see today into full on failure mode.

Agree. Vehemently. I think I'm going to go back and re-point at a comment that I made about people's observations a while ago: Basically, we as human beings, can we really collectively be trusted with a fractional reverse banking system and fiat currencies? We're pretty irresponsible ..

That UK bank should be allowed to go under and you should be insured to your government insured limits. Y'know, just like how the deal that is getting done in Cyprus now is getting done.

Sure, let the biggest bank in UK go under, and the government would be able to keep the deposits safe by increasing taxes, in effect forcing you to spend them... it worked so well back in 2008

Quote:

Originally Posted by willx

Here's something else: do you not understand something? The old GDP numbers? The old employment numbers? THEY WERE A LIE! They were based on artificial government overspending fueled by debt.

Nope, the so called false statistics that Goldman Sachs cooked for Greece in order to enter the euro stopped back 2004 with the change of government. The ones I mentioned start from 2008, a few months before the IMF.

Quote:

Originally Posted by willx

Y'know what's the coldest and hardest move they could have done? Automatic ejection from the eurozone upon defaults. Instead of money going to prop up Greece and all of these other countries? Provide a one time recovery fund for domestic investors and let everyone else flounder.

That would provide more tools to fix the situation in a more humane manner, but countries are not allowed to do that, because...

Quote:

Originally Posted by willx

Why was that not done? Fear of contagion. Fear of moral hazard. But y'know what, Germans, Britons, French, the public in all those countries would have loved it. Then what would have happened to Greece?

One thing that would have happened is that its debt wouldn't have exploded, internal debt would be serviced and should the politicians there be marginally capable restructure the economy. Now if Germans, Britons, French would cheer because they let another nation be destroyed saving 0.0000-something percent from their taxes and losing another country to export, you probably have a very bad opinion about them.

Quote:

Originally Posted by willx

If you think 24% unemployment is high, think about what it would have been if the country literally went bankrupt and all international markets immediately froze them out?

The real economy could start to develop again, now its completely destroyed after three years of "fixing" it. For Cyprus it's even worse because they one-shot it last Friday. Now they will destroy its democracy too should they skip the parliament. In EU (and in theory eurozone) countries are supposed to be equal partners, not colonies. The terms for this "help" sounds more like the occupation loans back in WWII, they also proclaimed to help rebuilding the occupied countries (this is an exaggerated analogy).

Anyway, better read the article I linked earlier for criticism from someone belonging to your sector who starts from a different basis, but draws the same conclusions on how destructive the current euro policy is both financially and politically.

That UK bank should be allowed to go under and you should be insured to your government insured limits. Y'know, just like how the deal that is getting done in Cyprus now is getting done. Here's something else: do you not understand something? The old GDP numbers? The old employment numbers? THEY WERE A LIE! They were based on artificial government overspending fueled by debt.

Y'know what's the coldest and hardest move they could have done? Automatic ejection from the eurozone upon defaults. Instead of money going to prop up Greece and all of these other countries? Provide a one time recovery fund for domestic investors and let everyone else flounder.

Why was that not done? Fear of contagion. Fear of moral hazard. But y'know what, Germans, Britons, French, the public in all those countries would have loved it. Then what would have happened to Greece? If you think 24% unemployment is high, think about what it would have been if the country literally went bankrupt and all international markets immediately froze them out?

Actually, even Germany had to break their own rules during the current history of the EU. It seems not a single nation in the EU actually complied with the strict financial requirements.

In short, everyone lied. And now everyone just wants to duct-tape the EU together and hoping it holds.

@VCV: True, let me remind everyone also that the main argument against Cyprus banking system is money laundering, but comes from countries which banks are more guilty. So should we levy the deposits in Greece, Luxembourg, Germany, Austria, Slovakia, Italy, Spain and the Netherlands because there are more illegal capitals there then Cyprus? Hypocrisy has some limits I think.

It would be great if there were any sane non-populist politicians left in EU to rewind all the policies and treaties before Maastricht, and work them out correctly this time.

So when a government overspends by borrowing money, even at unsustainable levels, that spending is accounted for in GDP. I'm not saying that Greece's GDP was uniquely inflated. I'm saying the last decade of buoyant global economic growth was overstated. I've made this argument before whenever Bill Clinton talked about presiding over the longest period of economic growth in US History.